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# IRR and NPV

2. A firm is considering investing \$10 million in equipment that is expected to have a useful life of four years and is expected to reduce the firm's labor costs by \$4 million per year. Assume the firm pays a 40% tax rate on accounting profits and uses the straight-line depreciation method. What is the after-tax cash flow from the investment in years 1 through 4? If the firm's hurdle rate for this investment is 15% per year, is it worth while? What are the investment's IRR and NPV?

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2. A firm is considering investing \$10 million in equipment that is expected to have a useful life of four years and is expected to reduce the firm's labor costs by \$4 million per year. Assume the firm pays a 40% tax rate on accounting profits and uses the straight-line depreciation method. What is the after-tax cash flow from the investment in years 1 through 4? If the firm's hurdle rate for this investment is 15% per year, is it worth while? What are the investment's IRR and NPV?

After tax cash flow

Depreciation (sttraight line)= \$2,500,000 =(10,000,0000 ...

#### Solution Summary

Calculates IRR and NPV of investment.

\$2.19